The gap between politicians that support funding the U.S. Treasury's Community Development Financial Institutions Fund and those who don't may have become the widest ever last week as the House Appropriations Committee proposed that only $50 million should be spent from the CDFI Fund in the remaining seven months of fiscal year 2011.

The Obama administration had initially budgeted $250 million for the fund in 2011 and then revised that downward to $247 million in its proposals for continuing resolutions that Congress passes each year to fund the federal government absent formal appropriations.

But congressional Republicans, feeling empowered after having won control of the House of Representatives in the 2010 elections, have taken a harder line. As part of their overall effort to cut spending, the House Appropriations Committee has proposed the CDFI Fund spend only $50 million in the balance of fiscal year 2011.

In addition to being $197 million below the CDFI funding level enacted in 2010 and carried on so far in 2011, the proposed $50 million is also $200 million below the level the Obama administration proposed, according to the CDFI Coalition.

The coalition, made up of stakeholders in the CDFI Fund, including credit unions, decried the proposed cuts and urged its member institutions to contact Congress.

"CDFIs across the country are financing small businesses and affordable housing development in low income and underserved communities that lack access to capital especially in recent years as conventional lenders have pulled back," the coalition said. "CDFIs are working to create and retain jobs and we cannot afford to reduce their funding by 80% at a time when demand for CDFI financing is robust and essential," it added.

Cliff Rosenthal, CEO of the National Federation of Community Development Credit Unions, called the potential cuts "huge" if they remain in place.

According to Rosenthal and other industry leaders, an analysis of the proposed cut showed it would slash funds available this year by almost 82% and result in sharply lowering economic activity in the areas
CDFIs serve.

The analysis showed that such a cut in CDFI will see the number of jobs drop by more than 19,000, affordable housing units by more than 14,000, small business loans by over 3,000 and the amount of private-sector money leveraged into underserved areas would drop by more than $1.6 billion.

But it's an open question whether or not the proposed cuts will stand.

Congressional observers likened the continuing resolution proposals from both the administration and the House Appropriations Committee as the opening bids in what will likely be a long, drawn out negotiation that will be mostly conducted behind closed doors. Should that be the case, the CDFI Fund may wind up with something closer to the appropriation of roughly $107 million, which was the appropriation for fiscal year 2010.

When the final appropriation for this year is decided, the CDFI Fund will fund as many grant applications as the funding will allow, a fund spokesman said. Even though its final funding was not settled, the fund accepted grant applications for this year's funding round last year.

The severity of the Appropriations Committee's proposed cuts to CDFI in this year obscured the news of the administration's proposed budget for fiscal year 2012, which was far better for the CDFI and drew better reactions.

"There is a lot of bad news for low-income people in the president's budget proposal for fiscal year 2012. Cuts in community development block grants, community service block grants and low-income heating assistance to name a few," Rosenthal said. "But it is striking that the administration's proposal strongly supports the CDFI Fund, with only a modest overall cut. Moreover, it requests funding for two innovative initiatives, the Bank on USA and the Healthy Food Financing Initiative, which were in the FY 2011 budget but are vulnerable if Congress only passes continuing resolutions at a reduced level rather than the previously proposed budget."

The CDFI Fund made a similar point about the proposed appropriation.

"The president's 2012 budget request for the CDFI Fund recognizes the vital role CDFIs play in this nation's financial services industry and in supporting an inclusive economic recovery," said CDFI Fund Director Donna J. Gambrell.

"Today, even as the economy shows clear signs of growth, there are many low-income communities that are simply not being served by traditional capital markets and whose residents lack access to the basic, affordable financial services needed to open up a checking account, save up for a car or a home or take out a loan to start a business. The president's budget request would continue the investment in this nationwide network of responsible, community-based lenders that provide the basic financial services you and I take for granted, and help Americans on the margins of our economy to build credit, gain access to mainstream financial services and take part in the American dream.," Gambrell added.

According to the CDFI Coalition, the Obama administration's proposed 2012 budget would cut the CDFI Fund by just over 9%. The organization reported the administration has proposed just over $227 million for the program 2012, about $23 million less than the amount proposed for 2011 and about $20 million less than the level included in the administration's continuing resolution for 2011. The CDFI Fund has yet to comment on the budget allocation.